The 2008/9 financial crises revisited – Scene India 2018
Economic survival is about two terms – liquidity and solvency. In simple terms liquidity is like when you walk into a store to make a purchase and realize you are not carrying enough cash. (I am assuming that only cash payments are accepted). However, you have enough money in your bank account. So, purchases can be made later. Insolvency on the other hand is more serious, one absolutely does not have money, digital or line of credit or otherwise to make transactions in a monetized economy.
The IL&FS conglomerate is a story of liquidity and not one about solvency. I say this because the conglomerate is owned by organizations having financial muscle. Flying at 30,000 feet NBFC’s (IL&FS has that diversification as well) also finance home loan purchases while there are regulations that forbid them from accepting deposits. Therefore, they make a beeline to banks and mutual funds for funding through debt funding and commercial papers. As you may know, IL&FS defaulted on meeting payment obligations. This is a clear case of asset-liability mismatch.
The current situation is similar (not the same) to the infamous financial crises of 2008/09. The networks were intricate and it was big money, big institutions, and involved the wolves of Wall Street etc. In comparison the IL&FS situation pales into insignificance.
The similarities are the signs of panic, fund managers unloading instruments indiscriminately in the market, and rumors of an imminent crisis. The banks shut the doors. The rating agencies (the bad guys of 2008/09) quietly brought down the market rating. The stock of IL&FS plummeted. The government was quick to direct the RBI for a bailout but thankfully, the RBI was sensible enough to tell the government that the market will correct on its own, given the time. The situation brought the financial market, the players, the government and the regulator to their toes, and as you read this, it is far from over. So, what is in this for us Project Managers? Some of the aspects include – Stakeholder management, Risk management, and Lessons Learned.
An organisation that has several simultaneous projects of varying size and importance will need to evaluate which to keep and which to dump. Taking tough decisions is business as usual. The downside to this is the rumor mill that can go viral and be morally devastating, even though it’s not all true. Second, the stakeholders and project sponsors may not be fully synched up on all projects / programs. A strong enterprise-level risk management process gives an unbiased view on new and existing projects holistically. Finally, the lessons learned from other projects in the industry is a very important input for the risk management team to form a fact-based opinion and present this to the decision makers.
Thanks and Best Wishes
Tanish Mathur, PMP, PMI-ACP